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Retirement firms degenerate

By Peter V O'Brien

Thursday 17th April 2003

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Investors continued their low-key approach to retirement village and healthcare companies in the past six months, despite the latter's optimism about prospects.

The table includes Wakefield Hospital, which operates private hospitals and ancillary health services, because that company is clearly in the healthcare sector, particularly for the elderly, and has valuable real estate.

Companies' optimism about an ageing population's demand for their facilities was valid in the short-term, but the situation could change in future. People in their late 60s through to the early 80s may find retirement villages with medical facilities attractive, as shown in demand for units, but there is no guarantee of effective geometric or arithmetic growth.

Demand seems to be coming from people born in the 1920s and early 1930s. That generation had many hassles and could be getting weary of looking after gardens, house maintenance and walking through empty rooms after the chicks spread wings and flew.

There is no doubt such people buy retirement village units but there is strong demand for apartment living among the group, many of whom may be elderly in body but young in mind.

It is possible the trend could continue, as a generation used to total independence ages and rejects a "caring" semi-institutional environment. There are many instances in Wellington, for example, of people in their 80s selling houses, buying apartments and relying on neighbours "through the wall" for collective security.

That phenomenon could develop, putting pressure on the companies' development plans which seem based on a possibly overly optimistic assessment of demand.

The optimism was shown in recent reports from listed companies. Metlifecare chairman Peter Fitzsimmons said in the report for the year ended December 31 his company was in a market with "attractive demographics."

Ryman Healthcare's interim report for the six months ended September said: "The elderly, as a demographic sector, are increasing in number and demand for the type of facilities and services offered by the group is continuing to grow."

Companies in the sector overextended themselves in recent years and scrambled into reorganisation programmes. They seemed to be trying to lift confidence among existing and potential shareholders.

The approach overlooked standard market suspicion about poor-performing companies. Markets need proof profit recovery is more than one-off. Analysts and investors look at returns on investment. Companies in the retirement and healthcare sector had relatively weak earning rates on shareholders' equity, with the exception of Ryman Healthcare.

Ryman returned an annualised 13.1% on shareholders equity in the six months ended September 30. Calan came in at 5.2% on annualised basis for the six months ended December 31. Eldercare's annualised return was 3.2%, based on earnings for the six months ended November 30 and Metlifecare produced 9.1% in the year ended December.

The companies have a way to go to overcome investor cynicism. Seemingly unproven enthusiasm about future prospects did nothing to increase investor confidence. There could be a delicious irony in the point that directors and executives could eventually seek solace in their company's assets.

Retirement and healthcare companies' share prices

Company Price Price Change 2002-03 2002-03

10.4.03 15.10.02 Oct-Apr high low


--------------------------------------------------------------------------------

Calan Healthcare $0.78 $0.82 -4.9% $0.91 $0.76
Eldercare $0.16 $0.21 -23.8% $0.31 $0.131/2
Metlifecare $1.13 $1.10 +2.7% $1.50 $1.00
Ryman Healthcare $1.52 $1.68 -9.5% $1.96 $1.50
Wakefield Hospital $1.35 $1.35 Nil $1.60 $1.15

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